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News release
Thursday 28 October 2004
HOUSEHOLD DEBT TO EXPLODE WITHIN A DECADE
UK household debt1 is set to leap from £1 trillion to £1.6 trillion over the next 10 years. New analysis carried out by Skipton Building Society for its ‘Financing Your Future’ report concludes that debt will increase from 139 per cent of household income in 2004 to 150 percent – resulting in significant social changes.
Perhaps the biggest response to the debt explosion, the Skipton report reveals, will be a ‘savings renaissance’. In what will be a radical shift in attitudes towards savings, driven primarily by pension under-funding, people will change their behaviour to use additional income like bonuses, windfalls or inheritance, to boost savings – rather than spending on consumer goods, services and luxuries. Some will even over-save to compensate their shortfall.
Another significant consequence for many will be the postponement of retirement. As the cost of servicing debt chips away at available funds for pension investment, many people will decide to work longer in order to provide for later life.
For those planning to expand their households, the debt burden may have damning implications, the report highlights. With the financial costs of raising a child soon set to exceed six figure sums, those couples with heavy debts - particularly after leaving university – may be forced to rule out having children to improve their long-term financial situation.
For some, the burden of debt may become so acute that they feel the desire to radically change their lifestyle. Some will ignore the temptations of a materialistic consumer society in order to avoid further debt. As a result, downshifting – already a reality for many disillusioned urbanites - will see people trading down house size, location and mortgage costs in order to opt for a simpler, more cost-effective lifestyle.
The Skipton report cites over-reliance on borrowing and credit as key factors in the next decade’s debt accumulation, with higher interest rates, unemployment and lower house prices as underlying threats to household income.
Jennifer Holloway, head of media relations at Skipton Building Society, said: "Over the decades, we've shifted from a culture of thrift to a culture of spend and now a culture of debt, where our incomes cannot keep up with our lifestyles. As a result, we predict a future shift to a 'savings renaissance', where people once again save up to buy what they need and re-evaluate the cost of what they desire in order to make lifestyle choices that fit with their finances. What is clear is that there will need to be a period of savings catch-up to counter the debt-explosion."
Ends
Editor’s Notes
1 The term debt covers secured and unsecured debt, but does not include all unsecured borrowing
Methodology: The research was undertaken by worldtocom.com futures network on behalf of Skipton Building Society in July 2004
For further information journalists should contact the Skipton Press Office